Conversions Of Older Apartments Fuel Active Miami Condo Market

By Marilyn Bowden
The conversion from rental apartments continues to feed the demand for condominiums in Miami-Dade, according to local builders and researchers.

"The condo conversion trend in Miami-Dade County continued during 1999," the multi-family team at Grubb & Ellis report in Apartment Market Trends. "In suburban areas, 1970s low- and mid-rise properties are being converted to condominiums and selling at prices ranging from $50,000 to $100,000.

"On waterfront and beach areas, 1960s and 1970s high-rise rental properties are also being converted to condominiums and selling at prices ranging from $100,000 to $500,000."

The Meyers Group, which tracks new home and apartment markets, noted 472 units removed from the apartment inventory due to condo conversion in first quarter 2000 in the Miami Lakes and West Miami submarkets alone.

General Real Estate Cos. recently formed a partnership with Miguel Poyastro to start up GREC Conversions Ltd., specializing in conversion projects.

Mr. Poyastro said he cut his teeth in the business with Crescent Heights, a company he says led a conversion trend in the early 1990s by converting 18 oceanfront and waterfront towers in Miami Beach.

The new company’s first project, the 186-unit Villas of Miami Lakes, is near completion.

GREC Conversions bought the property, 7460 Miami Lakes Drive, across from the Don Shula Golf Club & Steak House for $10 million last October, Mr. Poyastro said, and put $3.5 million into renovations.

Since then, he said, GREC has closed on 180 units, which start at $59,000 for one bedroom and $79,000 for two.

"The majority of our buyers are not the renters," Mr. Poyastro said. "They accounted for about 8% of sales."

Where renovations of older apartment buildings typically require only minor changes to unit interiors if they are to remain rentals, he said, condo conversions require more extensive, longer-lasting rehabilitation. "For instance, you can’t just patch a leaky roof. You need to replace it right away."

Not all apartment buildings are good candidates for conversion, Mr. Poyastro said.

"It has to be special in some way," he said. "It should have a special location — on the waterfront or overlooking a golf course."

In addition to facing the Don Shula Golf Club, he said, Villas of Miami Lakes has tennis courts, a pool, club house, fitness center and children’s playground.

While some conversions attempting to attract renters are under way in Hialeah, he said, GREC will focus on stable neighborhoods such as Kendall, Coral Gables, Miami Beach and Miami Lakes.

"We’re aggressively looking for properties in Miami-Dade, Broward and Palm Beach counties," he said. "We prefer Miami- Dade, but the realities of the market are forcing us north. There’s simply very little product here.

"We’re also looking to joint venture with existing property owners to convert their buildings."

Rosendo Caveiro, senior vice president of the apartment services group at Grubb & Ellis, said the current trend in conversions of suburban apartments is unique to South Florida.

"We have conference calls with colleagues across the nation," he said, "and except for Atlanta, where it’s happening to some extent, there’s nothing like it elsewhere."

The trend is reducing the stock of middle- and working-class apartments, he said.

Though lots of new apartment units are expected to open in the downtown, Brickell and Miami Beach submarkets, Mr. Caveiro said, they’re all targeting a luxury market.

The most active areas for conversion projects, he said, have been Airport West’s Fontainebleau Park area, Kendall and Hialeah.

"The is happening for several reasons," he said. "One is the scarcity of land. Two, it’s cheaper to buy an existing building and convert it than to build from scratch, by a long shot. Construction costs and government regulations make if very difficult to build from scratch.

"Three, interest rates are still relatively low. A developer can buy an apartment property in the suburbs that caters to the working class, convert it and sell it to them.

"The monthly outlay for the buyer will be the same or less than what they’re paying to rent right now."

David Luther, research manager at Marcus & Millichap, said it makes more sense to spin off a well-located, class-B apartment property as condominium units than to refurbish it to compete with newer apartment buildings.

"Sometimes," he said, "the smaller properties are more profitable than larger ones. A good property in a well-located area on the upswing can be extremely profitable." Details: Mr. Poyastro, (305) 904-6026.